Halftime: Did China Just Kill Our Bull Market?

On Monday, chatter on the Street had everything to with China’s unexpected rate hike, and whether Beijing would quash the global rally in equities to keep China’s inflation under control.

Chinese shares were hit hard on the rate hike news, with the Shanghai index dropping 1.9 percent after rising earlier in the day.

Investors interpreted the developments as a sign that China was willing to sacrifice growth to keep a lid on prices – especially domestic food prices.

As you might expect, commodities came under pressure, with crude , wheat and cotton all in the red.

How should you position now?

Instant Insights with the Fast Money traders

Both Dennis Gartman and Jon Najarian remain bullish. In fact they say China’s decision to raise rates isn’t a sign of trouble at all – rather it’s a sign that China’s economy is very strong. “If the markets thought China was going to quash the bull we’d see oil down $1 or more, says Dennis Gartman.” “No I don’t think the rate increase is nearly as serious as some people make it out to be.”

Jared Levy shares the sentiment and sees opportunity not only in China but in all the RDEs or rapidly developing economies. “Demand for infrastructure, chemicals and even food,” should remain robust, he says. To play the theme, Levy suggests long positions in FMC Corp and Rockwood Holdings .

Steve Cortes, however, sees the rate hike quite differently. He tells the desk these developments are material and bearish. He thinks the rate hike is just the first move with more to come. “China is behind the curve in fighting inflation. I think China has about 200 basis points to go if they get serious about fighting inflation.”

Cotes is also concerned by the action in the Emerging Markets ETF as compared to the S&P. “The EEM has traded poorly in the recent weeks – it’s off the November high while the S&P is about 2% above that same high. It’s sign that money is flowing out of emerging markets and into the United States.”

As a result Cortes is skeptical of China high fliers such as BHP and Vale, and is short Las Vegas Sands (due to their Macao presence) at $50 and again at $47. “I'd be very cautious,” he says.

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RETAIL SALES

What should have been one of the busiest shopping weeks of the year turned out to be a complete white-out for some retailers with a blizzard blanketing the East coast.

How should you trade, now?

I sold my position in Coach and Tiffany, says Patty Edwards. But that was taking profits in stocks that had moved far and fast. Now I’m looking at a long position in Target . My channel checks suggests they ate Walmart’s lunch this Christmas.

I agree that Target is well positioned, says Jon Najarian.

I’ve got Amazon on my radar, says Jared Levy and I like this stock long-term. However, I’d be cautious of the stock into earnings.

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BANKS THE HOT TRADE OF 2011

Always on the quest for the next big move, the Fast Money desk couldn't help but notice the action in some banks stocks.

For example, over the past month BofA has gained about 20% while the Dow’s up about 4%.

Is the outperformance a sign that financials want to break out? Will banks be the hot play of 2011?

No, says Patty Edwards. There are just too many problems with the homebuilders that can still roil the banks. Don't be surprised to find out there’s more stuff on their balance sheets that’s not good.

I agree with Patty, says Jared Levy. If you must play this space I’d look at Goldman Sachs.

Also the outperformance in Bank of America may be deceiving, adds Jon Najarian. It's tied to the sell-off triggered by Wikileaks, which turned out to be nothing, he says. I don’t think Bank of America is truly outperforming. It’s simply recovering.

A larger than usual volume in March 75 and 80 calls suggests to Najarian this stock could make a sharp move higher – but not until March.

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DENNIS GARTMAN: 3 OUT OF THE BOX TRADES

Dennis Gartman has put together his top 3 'out of the box' trades for the new year. They are:Ag – America’s farmer are doing better than they have in the past decadeRegional Bank Rally – Specifically, banks that benefit from ag -- regional banks in the MidwestStrong stuff –railroads (they move stuff – not only ag but also coal and steel)

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Trader disclosure: On December 27th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Funds Managed by Dennis Gartman own (NSC); Funds Managed by Dennis Gartman own (SWC); Funds Managed by Dennis Gartman own (CLF); Funds Managed by Dennis Gartman own (FAX); Funds Managed by Dennis Gartman own (BPT); Funds Managed by Dennis Gartman own (EPD); Funds Managed by Dennis Gartman own (MOS); Funds Managed by Dennis Gartman own (RJA); Funds Managed by Dennis Gartman own (CF); Funds Managed by Dennis Gartman own (MON); Funds Managed by Dennis Gartman own (GLD); Funds Managed by Dennis Gartman are long the Australian Dollar; Funds Managed by Dennis Gartman are long the Swiss Franc; Funds Managed by Dennis Gartman are long soybeans; Funds Managed by Dennis Gartman are long wheat; Funds Managed by Dennis Gartman are short (HSD); Funds Managed by Dennis Gartman are short (DB); Funds Managed by Dennis Gartman are short the Yen; Funds Managed by Dennis Gartman are short the Sterling; Funds Managed by Dennis Gartman are short the Euro; Accounts managed by Levy own (SPY) call spreads; Accounts managed by Levy own (CME) call spreads; Accounts managed by Levy own (GLD) call spreads; Cortes is short (LVS); Cortes is short (XRT) vs. the S&P; Cortes owns (TSN); Cortes is long USD vs. the Australian Dollar and the Mexican Peso; Cortes is short Gold; Cortes is short Nat Gas; Cortes is short Corn

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